Krispy Kreme Buyer Lays Out the Dough

KRISPY KREME DOUGHNUTS' LARGEST SHAREHOLDER has taken another bite out of the doughnut maker, raising its stake by 20% or 1.25 million shares.

Mohamed Abdulmohsin Al Kharafi & Sons WLL, a Kuwaiti-based firm led by the Al Kharafi family, now owns 7,373,352 shares, or 11.4% of Krispy Kreme, solidifying its position as the company's largest investor.

A
Krispy Kreme
spokesman did not return a call for comment. Al Kharafi & Sons couldn't be reached for comment.

For Krispy Kreme investors who have had little to cheer about recently, the latest ownership disclosure seemed a welcome surprise. Krispy Kreme jumped 4.7%, or 41 cents, Wednesday to close at $9.09.

Al Kharafi & Sons first disclosed a Krispy Kreme stake of 4,133,000, a 6.7% stake, in April 2006, when shares also traded at about $9. The family has been buying shares since, despite the lack of sustained growth in the stock.

Meanwhile, the firm knows something about Krispy Kreme's business. In May 2006, Krispy Kreme awarded the right to develop Krispy Kreme franchises throughout the Middle East to Al Kharafi & Sons' Americana Group.

At the time, Krispy Kreme said the agreement with Americana entailed the development of 100 locations over the next five years.

At the end of 2006, Al Kharafi & Sons disclosed an additional stake of 1.99 million shares, bringing its stake at the time to 9.8%.

On Monday Al Kharafi & Sons filed a Form 13G with the Securities and Exchange Commission, showing a 1.18 million uptick in shares for an 11.3% total stake.

With the firm's Krispy Kreme stake now above 10%, Al Kharafi & Sons is subject to more stringent disclosure obligations and will have to file any Krispy Kreme stock trades within two days of the event.

Accordingly, on Wednesday morning Al Kharafi & Sons filed a Form 4 indicating further purchases. Between Monday and Tuesday, the firm bought 71,900 shares for more than $611,000 at an average price of $8.50 per share.

The latest filing brings the family to its current 11.4% stake.

According to Krispy Kreme's proxy (data as of April 4), the next largest holder is Courage Capital Management with 4,318,102 shares, or a 6.7% stake.

The bullish move by Al Kharafi & Sons stands out amid otherwise bearish sentiment for Krispy Kreme stock. Among four brokerage firms that cover the $589 million company, the average rating is Reduce (or its equivalent), according to Thomson Financial's First Call mean.

Following Krispy Kreme's fiscal first-quarter earnings report on June 4, BB&T Capital Markets analyst Andrew Wolf wrote, "In our view, the turnaround of the company remains a work in progress with some areas stabilized (legacy operations), others growing (international), but others still troubled (Northern California, New England, Canada)."

In BB&T's research report, Wolf retained an Underweight rating and added, "While we believe that CEO Daryl Brewster is leading a viable turnaround at the company, frankly it appears to us that investor expectations are set too high for 2007."

CIBC World Markets was slightly more upbeat and maintained a Sector Performer rating. "We are encouraged, but warn that recovery will be a long process, and we believe right now Krispy Kreme is between shareholder bases as the fast money has left and fundamental investors await the right price," analyst John Glass wrote in a research note.

Al Kharafi & Sons seems to have now found that price.

Jonathan Moreland, director of research at InsiderInsights.com, says the latest transactions could be the beginning of a positive insider profile for Krispy Kreme.

"What's missing here are the insiders themselves," Moreland notes, referring to the company's officers and directors. (The last such purchase came in June 2004, according to InsiderScore.com.)

Before turning bullish, Moreland says he would look for those insiders to confirm the positive signal from Al Kharafi & Sons.

According to public filings, Al Kharafi & Sons has limited involvement in U.S. companies, with the Krispy Kreme stake its only active public investment, according to StreetSight.net.

Until recently, the firm had also had a significant stake in an agricultural biotech company called Embrex, which was acquired by
Pfizer
in January 2007 for $17 per share. Al Kharafi & Sons proved to be a long-term investor with Embrex, according to available public filings. The firm had held shares since at least 1996, a year in which the stock traded in a range from $5.50 to $8.12.

With Krispy Kreme shares down 76% over five years and bearish sentiment still leading the way, Al Kharafi & Sons' investment in the doughnut maker could require a similar level of patience.

Recent Insider Activity

BUYERS:

COMPANY NAME

INSIDERS NAME

TITLE

$ VALUE

NO. OF SHARES IN TRANS.

RANGE OF VALUES

TRANSACTIONS DATES

Mobius Management Systems

J. Albracht

DO

$37,827,698

3,763,950

10.05

June 15, 2007

Ligand Pharmaceuticals

D. Knott

D

2,734,684

400,100

6.84

June 15, 2007

Mobius Management Systems

D. Gordon

OT

542,700

54,000

10.05

June 15, 2007

Cohen &amp; Steers Select Utility Fund

W. Smith

D

402,256

15,000

26.73-27.19

June 18-19, 2007

Churchill Downs

L. Coleman

D

215,398

4,000

53.61-54.12

June 15, 2007

Cadiz

G. Grant

D

115,139

5,000

23-23.03

June 14-15, 2007

EMS Technologies

N. Mackay

O

102,750

5,000

20.55

June 15, 2007

MVC Capital

G. Hellerman

D

89,654

4,600

19.49

June 15, 2007

Banctrust Financial Group

H. Morrissette

D

82,661

4,231

19.40-19.80

June 13-15, 2007

Gabelli Global Deal Fund

M. Melarkey

D

73,839

3,800

19.42-19.45

June 15-18, 2007

(Source: Thomson Financial/Baseline)

SELLERS:

COMPANY NAME

INSIDERS NAME

TITLE

$ VALUE

NO. OF SHARES IN TRANS.

RANGE OF VALUES

TRANSACTIONS DATES

Autodesk

M. Taylor

D

$22,965,559

509,576

45-45.63

June 18, 2007

Ebay

M. Whitman

CEO

20,386,720

640,000

31.74-31.97

June 14-15, 2007

Guess ?

M. Marciano

CB

20,069,187

406,600

49.35-49.50

June 15, 2007

Lehman Brothers Holdings

T. Russo

O

14,787,383

187,289

78.65-79.72

June 15, 2007

Integra Lifesciences Holdings

R. Caruso

DO

12,277,500

250,000

49.11

June 15, 2007

Guess ?

P. Marciano

CEO

9,378,375

190,000

49.35-49.50

June 15, 2007

CVS Caremark

W. Spalding

O

9,337,675

250,000

37.35

June 18, 2007

Grant Prideco

M. Mcshane

CEO

8,935,500

150,000

59.57

June 18, 2007

National Semiconductor

E. Sweeney

O

8,402,740

295,000

28.41-28.67

June 15, 2007

Garmin

M. Kao

CEO

7,573,876

107,170

70.02-71.53

June 18-19, 2007

(Source: Thomson Financial/Baseline)

Here's a rundown of insider trading activity reported on June 20, 2007. An insider is any officer, director or owner of 10% or more of a class of the company's securities. The table shows purchases and sales which must be reported to the SEC and other regulators by the 10th of the month following the month of the trade, includes both open-market and private transactions involving direct and indirect holdings. Excludes stock valued at less that $2 per share, acquisitions through options and companies being acquired. Included are purchases, sales and stock registered for sale for individual officers, companies, and sectors.

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